Vacancies at US open-air centers hit record lows as rents rise due to scarcity. Meanwhile, discount retailers and big-box stores fuel expansion plans.
Vacancies at US open-air shopping centers have hit a record low of 6.2%, the lowest since 2006, according to CoStar. This scarcity allows landlords to raise rents significantly as leases expire, with construction of new retail spaces stymied by high interest rates and soaring costs. Brandon Isner of Newmark debunked the "retail is overbuilt" myth, noting that demand for physical retail is growing. Meanwhile, discount chains like TJX (parent of Marshalls and TJ Maxx), Burlington Stores, and Ross have added 339 new US stores this year, driven by inflation-weary consumers seeking bargains.
While open-air centers thrive, malls are seeing higher vacancy rates. Analysts at Green Street estimate rents in top markets need to increase by 65% to justify new construction. Despite ecommerce growing 7.5% in Q3 2023 to $289B, it still accounts for under 17% of total retail sales. Physical stores remain vital as hubs for online orders and returns, helping traditional retailers bridge the gap between in-store and online shopping. This trend has turned existing shopping centers into powerful profit engines for landlords, further boosting their pricing power.
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